The Green Paradox

A leading economist develops a supply-side approach to fighting climate change that encourages resource owners to leave more of their fossil carbon underground.The Earth is getting warmer. Yet, as Hans-Werner Sinn points out in this provocative book, the dominant policy approach-which aims to curb consumption of fossil energy-has been ineffective. Despite policy makers’ efforts to promote alternative energy, impose emission controls on cars, and enforce tough energy-efficiency standards for buildings, the relentlessly rising curve of CO2 output does not show the slightest downward turn. Some proposed solutions are downright harmful: cultivating crops to make biofuels not only contributes to global warming but also uses resources that should be devoted to feeding the world’s hungry. In The Green Paradox, Sinn proposes a new, more pragmatic approach based not on regulating the demand for fossil fuels but on controlling the supply.The owners of carbon resources, Sinn explains, are pre-empting future regulation by accelerating the production of fossil energy while they can. This is the “Green Paradox”: expected future reduction in carbon consumption has the effect of accelerating climate change. Sinn suggests a supply-side solution: inducing the owners of carbon resources to leave more of their wealth underground. He proposes the swift introduction of a “Super-Kyoto” system-gathering all consumer countries into a cartel by means of a worldwide, coordinated cap-and-trade system supported by the levying of source taxes on capital income-to spoil the resource owners’ appetite for financial assets.Only if we can shift our focus from local demand to worldwide supply policies for reducing carbon emissions, Sinn argues, will we have a chance of staving off climate disaster.